Payments: Past, Present, and Prospective

Background
22 Nov 2018

From the ancient Greeks to eBill: The way in which bills get paid is a reflection of a society’s culture. And the payment system chosen plays an important role in economic value creation. Security and trustworthiness are the necessary prerequisites.

SIX

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There’s a scene in the Iliad where Glaucus and Diomedes exchange their armor. Homer, the epic poem’s author, remarks that Glaucus must have been robbed of his wits: Whereas Glaucus’s golden armor was said to be worth 100 oxen, Diomedes was said to have paid a “vulgar price” of just nine oxen for his humble bronze armor.

Scholars of ancient history have differing interpretations of this minor scene on the periphery of the Trojan War, where Glaucus and Diomedes faced each other as enemies. Some view the exchange of armor as a gesture of homage because the grandfathers of the protagonists were friends after all. Others construe it as one of history’s first documented fraud attempt. Under this interpretation, Diomedes feigns the friendship ritual to get his clutches on the precious armor. But whatever the true motive was, for the jurisconsults of ancient Rome the unequal swap exemplarily demonstrated the need for money as a medium of exchange, for only that way can accurate price formation take place in the trade of goods, they believed.

This anecdote reveals three things that are still true even in today’s payment transaction regimes: Payment systems have a lot to do with culture, they have to be secure and trustworthy, and they have an impact on economic value creation – and eBill is no exception. Banks in Switzerland will migrate from e-bill to eBill by the end of 2018, ushering in a new era in payment transaction processing.

1. Payment systems have a lot to do with culture.

Homer calculated the value of armor in oxen. Later cultures paid in shells, grain, oil, salt, and, of course, precious metals. The choice of medium of exchange in each case was largely shaped by local factors: What was available, storable and practical? In the 17th century, societies in Europe slowly transitioned from barter to paper for reasons of efficiency (see point 3). And to this day, culture continues to play a big role in the way we pay bills.

Fast-forward now to 2016. Companies in the USA were still settling half of their payments by check. Why? This question was discussed in a US banking forum. The explanation garnering the most agreement was: “Because the recipient doesn’t need a bank account. Because it doesn’t incur fees. Because it works even when electronic systems break down.”

It appears difficult to persuade people to adopt something new, particularly in sensitive money matters.

France and the UK also are traditional pay- by-check countries. People in Portugal prefer to make their payments through special “Multibanco” ATMs. In many African countries, “cash only” has been the rule for centuries. But that now turns out to be an advantage: Since there is no other established payment system besides cash, it is possible to skip straight to very advanced mobile payment solutions, which are only slowly gaining traction even in industrialized nations.

The payment slip as Switzerland knows it will be replaced by the QR bill in mid-2020. And eBill already makes paperless payment transactions possible today. What will you do with your no-longer-needed payment slips? Here's how to fold an origami dove, for instance.

Switzerland, like Germany and the Netherlands, ranks among the world’s “giro” countries, where payment transfers from one bank account to another enjoy a high level of acceptance. But there are differences also within this group. Whereas Germany established the Reichsbank giro system back in 1876, banks in Switzerland fought into the 20th century against the proposed project to set up a joint consolidated clearing house needed to transfer remittances from one financial institution to another.

The moment of opportunity was seized by the Swiss postal service. Called PTT (Swiss Post, Telephone and Telegraph Company) at the time, in 1906 it launched its Postcheck system, which quickly caught on thanks to the many PTT offices throughout Switzerland. It wasn’t until 1949 that banks followed suit with their own system, the precursor to today’s Swiss Interbank Clearing payment system. Even later, in 1971, banks came to an agreement on introducing a standardized bank giro slip with a machine-readable code line.

The postal service wielded a formative influence over the payment processing system in Switzerland, marking a prominent exception in international comparison. For decades, the PTT payment slip remained a synonym for payments and was even taught in school. Its color changed over the course of its history – from green to red and from blue to orange – to accommodate scanners.

Banks also used payment slips and provided them to their clients even though the system actually was impractical: In order to pay bills, for a long time customers still first had to physically withdraw money from the bank and carry it to the post office.

In April 1997, Credit Suisse launched Switzerland’s first online banking portal. Although this didn’t eradicate the printed payment slip, it could be inputted electronically with the requisite hardware. From that moment on, payments could be made directly from one’s home or office.

Advantage eBill“With eBill, we are now completely closing the paperless circle in Switzerland,” says Marco Menotti, Head Banking Services at SIX. “Billers and invoice recipients can now settle payments with receipts entirely digitally.” In accordance with the mandate of SIX to operate a competitive infrastructure for Switzerland’s financial industry, all banks have access to this service and can integrate it into their online banking systems. This particularly facilitates smaller financial institutions because it enables them to provide a new service without having to bear the full development costs themselves. eBill originates directly from Switzerland’s payment culture and is a logical refinement of the historically rooted giro system.

The payment slip will live on as well – as the QR bill, which will replace current payment slips from mid-2020 onward, and will address a target group that still prefers an efficient paper-based payment solution. People who do not use online banking can continue to do their bill-paying at the post office counter or by mail. The integrated QR code on the bill can be scanned, however. It contains all of the data needed to complete a payment. The QR bill thus builds an important bridge between paper-based and digital culture and can mark an intermediate step for some on the way to adopting eBill.

2. Payment systems must be secure and trustworthy.Diomedes maybe swindled Glaucus out of his precious armor by invoking their families’ bond of friendship. He thus exploited Glaucus’s trust in him. Trust is the key to acceptance for any payment system. Just as Glaucus trusted Diomedes, Americans trust checks even though safer and more practical payment solutions have since come into existence.

The history of the signature illustrates how much the concept of security has changed over the years. For centuries, a signature was considered sufficient proof of security, and we still use it today to authorize payments by credit card, for example. Signatures are widely accepted and seldom questioned. If we were to question them, we would quickly realize how inefficient and unsafe they are. Verification of signatures always entails a margin of latitude, and it’s literally child’s play to forge a signature: If your daughter or son wants to play hooky from school, she or he usually knows exactly how to sign the attendance book. The signature is becoming less and less important as other safer and more efficient forms of authorization – PIN, fingerprint, face recognition, etc. – are taking its place.

It takes very convincing arguments to establish new trust. How was a 19th-century businessman persuaded to embrace the idea of trading his gold for a piece of paper? Just how superior was the banknote solution to the precious-metal solution that he agreed to engage in something so risky and unfamiliar?

Advantage eBillThere are a number of reasons why eBill provides a security advantage over the existing paper-based solution: eBill renders time-consuming, error-prone typing of reference numbers, billamounts, and account details into online banking systems unnecessary, giving people – the leading source of error – fewer possibilities to make mistakes. Also, eBill is the safest way to receive digital invoices. All of the billers participating in the system have been vetted. Furthermore, eBill is as secure and reliable as online banking itself, making it more dependable than sending invoices and payment orders by mail.

3. Payment systems have an impact on economic value creation.Bartering is inefficient and makes it impossible for a wider economic area to come into being. Even the simple question of how to make change for the purchase of two oxen is practically unanswerable under the barter system. In the Middle Ages, it took up to a year to transport a bill of exchange – a kind of check bearing instructions to pay a certain sum to the order of a specifically named person – from Kraków, Poland, to Avignon, France.

“Efficient payment processing is a cornerstone of economic advancement,” Fritz Klein and Guido Palazzo write in the preface to their book Kulturgeschichte des Geldflusses (Money Flow – A Cultural History). What they mean by that quickly gains clarity through another glance at history. In 1826, the Caisse de dépôt of the City of Bern issued the first banknote in Switzerland. The introduction of this paper-based payment system enormously simplified commerce. But as so often happens with innovations, it took some time for the added value creation to optimally take effect. The number of banks in Switzerland that issued banknotes rapidly swelled to 53. It wasn’t until toward the turn of the 20th century that Switzerland’s federal government was granted the monopoly right to issue banknotes.

eBill and the QR bill are sending the Swiss payment slip into retirement. Origami artist Sipho Mabona has his own idea about what could happen with them afterwards, as the sequence of photos shows. At the age of five, he folded his first paper airplane, and when he turned 20 he began to create his own original designs. Along that road he discovered origami. Since then, his achievements in that art have included his involvement in Origami in the Pursuit of Perfection the award-winning short film by sporting goods maker Asics Corp. And he has exhibited his creations in museums and galleries around the world. Sipho Mabona currently lives and works in Lucerne, Switzerland.

The mode of making payments in Switzerland continued to lack efficiency well into the 20th century both for customers – who had to withdraw money, take it to the post office and fill out complicated payment order forms – and for financial institutions. In the 1950s, “simplified international payment transactions” were introduced, though “simple” sounds a little ironic from today’s perspective. Each payment order form set consisted of eight duplicates. Despite the high-grade paper employed, the stack of sheets was so thick that it was hard to make a carbon copy that was legible down to the last page. Banks risked getting buried under an avalanche of paper.

Advantage eBillThe average Swiss household receives 11 invoices per month, and each act of paying a bill requires around three minutes of work – from opening the envelope and logging onto the online banking portal to entering the payment and finally archiving the invoice. Three minutes per bill times 11 invoices per month works out to the family bookkeeper having to spend around 6.6 hours on paying bills over a full year. Or take another example: setting up a direct debit. It’s a tedious process because the customer has to fill out a complicated form and has to coordinate the communication with the bank and the biller as well.

With eBill, the invoice now arrives directly in the customer’s personal online banking mailbox and can be paid in a matter of seconds with just a click. Moreover, automatic payment to selected billers can be authorized up to a self-determined maximum amount. That makes it very easy for customers to set up a standing authorization, which also provides more functions than the somewhat rigid and outmoded direct debit.

But eBill enhances efficiency beyond just for customers. On average, it costs a biller around five francs to generate, print, package, and send an invoice. That expense vanishes with eBill, and what’s more, the bill arrives even faster than before. Earlier receipt of payment is thus virtually assured, so to speak. Added value therefore increases.

E-bill Becomes eBill

Online banking is routine today for most of us, and many people have grown accustomed to executing their financial transactions from the comfort of home on their computers. Some companies are saving postage and protecting our environment by sending invoices by e-mail. But there’s an even more convenient and securer way to do invoicing in Switzerland: with eBill. The eBill solution sends electronic invoices directly to your online banking portal, where you verify them and authorize payment. With a few mouse clicks you have everything under control, all with the highest level of online banking security. This definitively makes the tedious and time-consuming double-checking and inputting of account and invoice numbers a thing of the past. No wonder more than a million customers and a multitude of renowned companies have already opted for the simplicity, security, and speed of eBill.

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